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1. National Federation of Community Development Credit Unions Mortgage Workshop March 18-19, 2008 Durham, NC Philip E. Greer
Sr. V.P. Loan Administration
State employees Credit Union
Raleigh, NC
919-839-5018
phil.greer@ncsecu.org
2. What is the single most contributory factor in the subprime crisis?
GREED
3. Everyone is paid upfront, including the rating agencies, except for the ultimate holder of the risk!
4. Who holds the risk? Is it the investor in the various mortgage backed securities which are collateralized by subprime loans?
Is it the homeowner/borrower who now faces foreclosure and financial ruin due to the greed of others?
5. Here are some Quotes to consider
6. Todays economic climate means risk management is more important than ever.
Deregulation, industry consolidation and industry overcapacity all have combined to make competition more fierce in the mortgage lending market.
Stronger competition has resulted in shortsighted behavior by some lenders in their efforts to maintain market share or just stay in business. These strategies can only succeed under very favorable economic conditions
7. One More Quote Dont rely upon a slightly lower interest rate or faster loan approval process to gain a lasting competitive advantage. Differentiate yourself by offering value added products and superior customer service instead.
8. Those quotes come from Insights . . . into Mortgage Finance Today Written by Ellen Schloemer
VP of Business Development
and Strategic Planning
GE Capital Mortgage
Insurance
9. IN 1987!
10. Whats in front of Us?
12. Who was abused? Per Center for Responsible Lending using 2005 HMDA data, African Americans and Latinos are much more likely to end up with a high cost loan
African American 52%
Latino 40%
White 19%
13. August 2006 quote by Mike Fratantoni, economist with Mortgage Bankers Association: The mortgage industry pricing is based upon objective credit risk factors . . .
Some of these factors happen to correlate with the demographic characteristics.
People should go on line and do some comparative shopping and run an analysis on how their payment will change with certain mortgages.
14. Maybe that sounds reasonable to you, but consider this.
15. The Opportunity Its not just poor folks who are vulnerable I should be able to make informed financial decisions. But, I confess, I closed on a mortgage to purchase a condo last year and never was able to get through all the disclosures provided to me. The volume of paper was so overwhelming I just signed everywhere there was a highlight or sticky note.
Betsy Duke, Federal Reserve Board nominee, UNC-CH graduate, and COO of Townebank, Portsmouth, VA, responding to questions before the
Senate Banking Committee.
16. And consider this
17. Up to half the people who take out sub-prime loans could qualify for a prime loan which charges as much as 4% less interest
(Fannie Mae, Economist 8/31/2002)
One More Thing
18. As a staff member once told me, I dont care that someone lies to me, what bothers me is that they think Im dumb enough to believe it!
19. Right Now Whats happening?
21. Congress is working on plans for relief
Federal Reserve is working on plans for relief
HUD just put out new, revised disclosures
Hope youll be attentive and responsive to their plans.
Let them hear from you!
22. SECU Belief:
Foreclosure rates often as much a failure of the lender as the borrower
Consumers should investigate the foreclosure record of a lender before proceeding, much as you would a surgeon
23. Avoidance of Problems
Start with origination process
Remain true to basic credit union core principals
At SECU:
Underwrite loans on the merits of the individual borrower. Assure affordability
All employees are salaried. No commissions to influence underwriting decisions
Service all loans originated. No third party between us and our member
24. Require escrow accounts to eliminate non payment issues, budget issues.
No prepayment penalties on any loan
Reduced closing costs. No private mortgage insurance on portfolio loans
Work with the member to keep them in the home when unexpected problems arise
Offer only appropriate loan products
Do the right thing
25. New Products 5 Year Arm
20 year Term
Rate Change 1% max every 5 years
Life of the Loan 4.5%
All Savers Mortgage
15 year Term
Fixed Rate
Regular loan amount +10%
10% into pledged 10 year CD
CD rate = loan rate
$10,000 becomes 19,000 in ten years
26. June 2007 Outreach Mailed letters to members suspected of having subprime loans with other lenders
Encouraged them to contact us for refinance
Did not tighten or loosen guidelines
Originated 650 loans for $93 million
27. Dorothy Evans got our letter. She lives about 20 miles from here. Her comments: I wasnt able to breathe and was worried that I would have to find a new place to live. The opportunity to refinance was a miracle. I am thankful for SECU the Credit Union listened to my situation and helped me get my life back.
We included taxes and insurance in her payment, and still saved her $600 per month in her house payment!
28. For those 171 we couldnt help, we gave them a Tool Kit.
Basically, things they need to do to keep the home.
Talk to the lender!
29. Mortgage Loan Tool Kit
If you have a mortgage loan with a monthly payment that has become unaffordable (or soon will be) due to rapid rate and payment increases, there are actions that you can take to turn this situation around and protect your home and credit history.
If you are struggling to pay your mortgage payment or will soon be because of growing monthly payments, it is critical that you contact your lender to talk about your options. Most lenders will work with you to avoid or resolve delinquency issues if you work with them. It is in their financial interest to help you find a way to make your payment rather than to foreclose and sell your house.
30. If your mortgage payment is stressing you out, here are some options that might be of help:
Contact SECU! Call us or come by today and see if we can refinance your loan to one that has more favorable repayment terms! We may be able to help!
Contact your lender! Talk to them by phone or in person. Find out the following:
Can your loan payment be extended for a month? Will this get you back on your feet or do you need a different loan to make the payments affordable? To get an extension you may be asked to provide a hardship letter explaining why you are having difficulties making your payments. If so, please provide the letter.
31. Can your lender refinance the loan with a lower rate and affordable repayment terms? Watch out for high closing costs, high interest rates and penalty fees! Compare their new loan to an SECU loan before you refinance!
Does your lender have a forbearance or partial repayment plan? Such a plan allows you to spread the repayment of a delinquent payment over several months. This may give you time to catch up your mortgage payment and avoid foreclosure.
Can the terms of your loan be modified? In a modification, you pay a fee and the interest rate and/or payment terms are changed so that the monthly payment is more affordable for you. Be careful here again. The fee should not be excessive. We would be glad to look at your modification terms and see if we could offer you a better deal.
Get a debt consolidation loan. Would such a loan reduce the monthly payments on your other debt and make your mortgage payment affordable? Check with us and lets take a look!
32. Contact BALANCE. BALANCE is a consumer credit counseling group that we partner with to provide counseling services. BALANCE financial counselors can review your financial situation anonymously over the phone. They look for ways to help you better manage your debt and to revamp your finances to make payments affordable. There is no charge to you for this service. To contact BALANCE, please visit their website at www.balancepro.net or call toll-free, 866-747-7328.
Increase your income. Find a second job. Not a great option, but if your financial condition is temporary this might get you through to better times
33. Sell your house. We understand that this also is not a great option. However, you must be able to afford your monthly payment or you risk losing your home altogether. If you are unable to refinance the loan on your current house to a payment that is affordable, you may be able to afford a different home with a smaller monthly payment. You may be able to sell your home for less than the amount owed (a short sale) if your lender is willing to accept the sales proceeds in settlement of the loan. Ask them.
We are concerned about you. If you are struggling with your mortgage payment, we will do everything we can to help you find a solution to your current financial issues. Please contact us to see what we can do to be of service to you and your family.
34. What else have we done? Starting assessing late charges at 45 days rather than 15 days
No need to pile on fees
Allowed District SVPs to extend due dates by 3 months per year, 6 months over the life of the loan.
35. Our Experience
2006 Foreclosure .12%
2007 - Foreclosure .14%
Metropolitan areas experienced reduced rate of foreclosure.
90% of our loans are ARMs!
36. Future?? Housing issues through 2008, perhaps 2009.
Home prices nationally expected to decline as much as 25%
Foreclosures will increase even for CUs not involved in subprime.
Collateral damage
If capital levels and your market allow, use this as advantage to help your members.
37. Do the Right Thing
